Local Banks Look Beyond Home Market

By Na Jeong-ju
Staff Reporter

Globalization has increasingly become a life-or-death matter for Korean lenders, as Kookmin Bank CEO Kang Chung-won once stated, amid the negative outlook for their bottom lines.

Here, loan growth has stalled; a competition with securities firms to lure retail investors has become stronger; foreign banks are preparing more aggressive challenges; and regulatory barriers still remain high.

There is a more important reason for them to accelerate overseas exploration; to become a Korean UBS, a Korean Credit Suisse or a Korean Merrill Lynch.

It is not long ago that Korean lenders set foot in overseas markets. On the flip side, that means there is still a long way to go to keep up with foreign rivals. The government recently eased regulations barring banks' overseas investments, but more encouraging measures are imperative to help them realize their growth goals, economists say.

``The time has come for Korean banks to look more aggressively at regional expansion, and ultimately global expansion,'' HSBC Korea CEO Simon Cooper said at a forum in October. ``They have the capabilities to expand by acquiring overseas banks to move away from just a Korean market focus.''

Foreign financial firms and equity funds have reaped enormous gains through investment in Korean firms over the past few years. They now hold largest stakes in a number of domestic banks and financial firms.

The increasing presence of foreign capital on board Korea Inc. means it has to bring its business practices up to international standards.

Foreign investors helped Korean financial firms clean up their financial sheets. They emerged cleaner, stronger, and more transparent and have cultivated more sophisticated financial skills.

It's time for Korean banks, securities firms and insurers to vigorously expand their businesses into foreign markets ― the domestic market is too small for them as they need bigger markets to grow further.

Korean banks had been engaged in providing banking services to only Korean corporate clients operating in foreign countries. Beginning last year, however, Woori Bank and other lenders set up subsidiaries in China and other developing nations to provide retail banking services there. On top of banks, brokerage firms are also actively expanding their securities-related businesses in Hong Kong and emerging markets.

Policymakers believe Seoul's overseas portfolio investment is still low in view of its economic size.

``Considering the inter-country comparisons of investment sizes or the positive effects of overseas investment, the overseas portfolio investment should be expanded even more, and in this respect, the government will not spare policy support,'' Finance and Economy Minister Kwon O-kyu said.

In the case of emerging markets, price fluctuations are large, enabling high profitability when prices rise, but also leading to potentially severe investment losses when prices fall sharply and suddenly. ''Too much concentration of investment in China, India and other emerging markets is not desirable,'' he said.

To become strong contenders in global markets, Korean banks need to change their expansion strategies, analysts say.

So far, they have entered new markets by opening branch offices to serve only Korean companies. Even though they see huge growth potential in the market, they have been afraid of taking risks.

According to the Korea Institute of Finance, Korean banks need to advance into emerging markets in Asia through acquisitions so as to penetrate the markets quicker.

``Korean banks need to acquire local banks and utilize their retail business network to compete with their global rivals,'' the institute said in a report.

It proposed Korean banks focus on the retail business in emerging markets, citing Spanish banks that expanded their presence successfully in South and Central American nations in the 1990s by investing heavily in commercial banks and retail financing firms.

Indeed, some banks are seeking significant changes in the ways they invest in overseas markets.

Kookmin CEO Kang said the country's largest lender is also seeking to take over banks in Kazakhstan and Indonesia in a bid to increase its presence in emerging markets. The bank is now talking with Singapore's state-owned investment firm, Temasek Holdings, about how to rearrange shareholdings in Bank International Indonesia, which is controlled by a consortium that includes Kookmin, Temasek and Britain's Barclays Plc.

In December, Hana Bank obtained approval from Indonesia's financial regulators for an acquisition of a majority stake in PT Bank Bintang Manunggal, a tiny Indonesian bank with $30 million in assets. Hana signed a contract in August to buy a 61 percent stake in the Indonesian lender for 3 billion won ($3.3 million).

Shinhan Bank acquired the North America National Bank, a small-sized U.S. bank based in Atlanta, Georgia, for $29 million on Dec. 1. Shinhan's CEO Shin Sang-hoon said that the bank is willing to participate in merger deals in global markets.

Woori Bank CEO Park Hae-choon also recently said the bank will focus on expanding its overseas presence this year, targeting emerging markets, such as Brazil, the United Arab Emirates and Malaysia.

The government's plan to dismantle business barriers separating banking, insurance and securities businesses through the introduction of the Capital Market Consolidation Act will set the ground for local securities firms to become investment banks over the long-term.

``One of our broad policies in the future is to encourage domestic financial firms to take a more outward-oriented global posture in their business strategy and set their sights on becoming global players,'' said Lee Jang-yung, assistant governor of the Financial Supervisory Service.

``It is becoming increasingly clear that businesses that insist on looking inward or resist the forces of change will fall behind.''

jj@koreatimes.co.kr